taxes

Surplus Lines Tax Exemptions

The Nonadmitted and Reinsurance Reform Act of 2010 resulted in significant changes to the law regarding surplus lines insurance regulation and taxation. See Publication 94-431, Guidelines for Premium Tax Compliance with the Nonadmitted and Reinsurance Reform Act.

Exempt Surplus Lines Insurance Policies

Surplus lines insurance policies placed by licensed Texas surplus lines agents are not subject to the insurance premium tax if an exemption applies. These exemptions are based on Texas statutory exemptions or federal preemptions of state law.

Exemptions in Texas Law

Premiums on the following surplus lines insurance policies are exempt by Texas statutes:

  • Policies that cover risks or exposures properly allocated to federal or international waters. For additional information, see Texas Insurance Code, Section 225.004(e).
    • Policies that cover risks within Texas waters are taxable when Texas is the home state of the insured (Texas waters are within the Three Marine League Line, which is approximately 10.4 miles from shore).
    • Policies that cover risks within the territorial waters of another state are taxable when Texas is the home state of the insured.
  • Policies that cover risks or exposures under the jurisdiction of a foreign government. For additional information, see Texas Insurance Code, Section 225.004(e).
    • Territories and possessions of the United States are not under the jurisdiction of a foreign government, and policies covering risks there are subject to tax when Texas is the home state of the insured.
  • Policies that cover risks or exposures under ocean marine insurance coverage of stored or in-transit baled cotton for export. For additional information, see Texas Insurance Code, Section 225.004(g).

Exemptions in Federal Law

Certain surplus lines insurance policies are exempt from the insurance premium tax based on the identity of the policyholder. This is because some federal law preempts state taxation of certain individuals and organizations. Texas recognizes the following as exempt based on a federal preemption of Texas law:

  • The Federal Deposit Insurance Corporation (FDIC) when it acts as a receiver of a failed financial institution. This exemption applies to receiverships only, not to supervision or conservatorships. For additional information, see 12 U.S.C. Section 1825(b) (PDF).
  • Federally chartered credit unions, as found in 12 U.S.C. Section 1768 (PDF).
  • The National Credit Union Administration when it acts as conservator or liquidating agent for a federally chartered credit union. For additional information see 12 U.S.C. Sections 1787 (b)(2)(A)(i) (PDF) and 1768 (PDF).
  • Federally recognized Native American tribes or members of such tribes when the risks covered by the policy are within the borders of tribal lands. When the risks covered by the policy are outside tribal lands, the premiums paid for the policies are subject to tax.

Requesting a Refund

Requests for refunds of surplus lines tax paid in error based on these exemptions must be sent in writing to the Comptroller of Public Accounts, 111 E. 17th Street, Austin, Texas 78774-0100.

94-142
(06/2018)